Can the Domino's share price recover from legal drama?

Domino's recently faced lawsuits over alleged underpayment of workers and withholding company information, so are we witnessing the end of the good times for this once-celebrated ASX stock, or are we on the brink of a unique opportunity to acquire an undervalued gem at a discount?

What makes Domino's an interesting case is that prior to the end of 2021, Domino's share price was soaring, peaking at $167. Since then, it has nosedived by more than 75%, prompting questions about whether this sharp decline is warranted. Let's explore the specifics.

First up is Domino's recent financial performance, which presents a mixed picture. Revenue increased by 11% to $1.27 billion, which is encouraging, but profits dropped by 19%, settling at $57.8 million.

This decrease in profit, despite higher sales, is largely due to rising costs and strategic decisions including exiting the Danish market.

On a brighter note, Domino's is expanding into new markets in Asia, positioning itself for future growth. The company is also heavily investing in new technology to improve its delivery and logistics, and increasing the company's overall efficiency.

Turning to the share price, the current drop to a significant long-term support level of $40 is intriguing to say the least. The last time Domino's fell to this level was during 2018-19, after which it saw its share price rise by more than 300%.

This historical precedent makes the current share price particularly appealing, however, since the stock has yet to show clear signs of a rebound, I would like to see confirmation that buyers are willing to drive the price higher before becoming too optimistic about Domino's future.

So, if the company can resolve the recent lawsuits causing concern, Domino's strategic initiatives and the historical support level suggest there is potential for recovery and growth.

Therefore, I encourage you to carefully consider these factors and monitor the share price closely for indications of a recovery. If such signs emerge, then we might indeed be looking at an undervalued gem at a discount.

What are the best and worst-performing sectors this week?

The best-performing sectors include Information Technology, up just under 1%, followed by Consumer Discretionary, up under half a per cent and Healthcare, down just under half a per cent. The worst-performing sectors include Materials, down more than 3%, followed by Utilities, down more than 2%, and Industrials, down more than 1%.

The best-performing stocks in the ASX top 100 include Pro Medicus, up more than 5%, followed by JB Hi-Fi, up more than 4%, and James Hardie Industries, up more than 3%. The worst-performing stocks include Arcadium Lithium, down more than 12%, followed by ASX Limited and Atlas Arteria, both down more than 9%.

What's next for the Australian stock market?

What a difference a week makes. The All Ordinaries Index fell more than 2% this week, erasing the gains from last week. Interestingly, over the past four weeks a pattern has emerged where the efforts of both the buyers and sellers have reversed the following week.

These reversals have resulted in a sideways market movement with no side really maintaining dominance for any extended period. This price action might seem unremarkable, but I find it exciting because the longer the market consolidates, the stronger the eventual breakout.

Last week, my target for the expected rise was between 8200 to 8400 points, but if the market holds steady in this sideways movement for the remainder of June this will add strength to the rise I expect. Given this, I believe a target of 8600 points and beyond is likely, once the market finally breaks out.

My excitement for the next rise is enhanced given the market is pausing above the 7900 level, which is a significant level that I have highlighted previously. To be specific, 7956 was a previous all-time high and, therefore, the fact that the All Ordinaries Index is holding above a previous all time high signals strength. This is also confirmed as normally June is a month traditionally marked by declines for the All Ordinaries Index, however to date, we have not seen a significant drop in price.

This resilience reinforces my view that strong buying activity is still dominating the market. A point to note is that we are approaching the second round of dividend payments in the next couple of months. This typically spurs more buying from those looking to capture the final payment for the year. The current pause in the market suggests the bulls are taking a breather before their next charge.

That said we always need to be prepared for the opposite to occur, as such if the market falls to break below 7866 points, this will be the first warning of further falls to come. Regardless of the direction, the next move will be strong, so be prepared to act if need be and be prepared to do it quickly.

For now, good luck and good trading.

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